What is a Professional Trustee? Do I Really Need One?

Many
people ask me what is a professional trustee is, what they do, and what
value they can bring to a trust. Often, these people are considering
how they want to structure their asset holdings and what sort of return
they want to make from them.

The
simple answer is that a professional trustee who does their job keeps
you out of trouble and usually, out of expensive trouble that you
wouldn’t have seen coming.

We’re like the Family Trust Police.

What is a Professional Trustee?

A
professional trustee is a person (or a company) who acts as a trustee
of a trust. That person (or company) has no interest in the assets of
the trust – that is they are not a beneficiary of the trust and are not
entitled to share in the assets of the trust.

What does a professional trustee do?

Generally
speaking, a professional trustee’s function is to work with the other
trustees of the trust in looking after the beneficiaries, the trust
assets and in administering the trust. The difference is that a
professional trustee is trained to understand what has to be done when
running a trust.

Some of the functions professional trustees carry out are:

•
arranging meetings with the other trustees to discuss transactions the
trust is going to undertake, such as buying property, purchasing shares,
obtaining loans, etc;

• making unanimous decisions with the other trustees;

•
considering the existing investment policies of the trust and
discussing with the other trustees whether these policies should be
changed;

• signing appropriate documents with the other trustees such as agreements for sale and purchase and loan documents;

• Ensuring all the decisions the trustees make and the affairs of the trust are correctly recorded in minutes and in deeds;

• checking gifting is completed;

• other miscellaneous matters such as checking insurance policies are up to date.

Ultimately,
a professional trustee’s role is to check that the interests of the
beneficiaries are considered, the assets of the trust are protected for
those beneficiaries, and the trust is running correctly.

Why should you have a Professional Trustee?

It
is important to remember that trusts are set up for a variety of
reasons such as protection against means testing (eg: aged care fees), a
defence mechanism from property relationship claims, and for asset
protection.

However,
a trust will only protect assets if the trustees carry out their
functions correctly: This includes administering a trust properly. If
trustees don’t meet their duties, allegations can be made that the trust
is a sham and if those allegations are substantiated, asset protection
can be lost. Ultimately, this can result in the trust assets being made
available to satisfy claims, for example claims by creditors.

As
noted above, professional trustees assist other trustees by ensuring
all of them meet their legal duties and responsibilities. For instance, a
professional trustee can make certain the trustees meet regularly and
record all the transactions the trust undertakes.

Additionally,
the presence of a professional trustee who does their job right can
demonstrate that the trust is real. Assuming the professional trustee
carries out their functions properly, the chances of a successful
allegation of sham trust should be minimised.

Professional Trustee fees

Professional trustees usually charge fees, on the basis of holding the position of trustee. It is a small amount of money for the security received. For more information on our Professional Trustee fees, please contact us.

Professional
trustees will take out insurance policies in respect of their functions
and there is a cost to this. Also, professional trustees may charge for
the work they do on behalf of their co-trustees and on behalf of the
trust.

For example, a professional trustee can charge a fee for preparing minutes and executing documents.

Recently,
in a couple of cases, the courts favoured the appointment of
professional trustees. These cases showed that having a professional
trustee gave credence to the existence of the trusts and the
transactions undertaken by the trusts. So, despite the fees that may be
charged, serious consideration should be given to appointing a
professional trustee.

Summary

Having
a professional trustee is not legally necessary, but it can be an
enormous advantage. Professional trustees are usually well acquainted
with trustee duties and what action has to be taken to satisfy those
legal responsibilities.

By
a professional trustee assisting in all trustees meeting their
obligations, such as having meetings, making decisions, looking after
trust assets and correctly documenting and administering trust affairs,
the chances of successful allegations of sham trust are decreased.

Whilst
a mechanic isn’t legally required to carry out all car repairs, most
people want to ensure their car is safe and so usually have a mechanic
do repairs.

Not
using a mechanic might save a few dollars but ultimately, could result
in some nasty consequences. Having a professional trustee who carries
out their functions is much the same – the benefits can far out weight
any costs involved.

Individual trustees are often busy people, leaving little time to administer the trust under their control.

Additionally,
just like many of us don’t know how a car engine works and wouldn’t
know how to carry out car repairs, many people don’t know how to meet
their trustee duties and how to administer a trust.

Remember,
trustees are personally liable to all the beneficiaries of a trust and
unfortunately, ignorance of their duties is no excuse in the eyes of the
law.

Thus,
DIY trust administration practice is not dissimilar to undertaking car
repairs – savings on professional trustee fees may seem a great idea
initially but those savings can be outweighed by the costs faced when a
trust structure fails through DIY practice. Cheap can be expensive in
the long run.

We
have now just completed the end of the financial year and this is an
ideal time for trustees to ensure trust administration has been done
correctly.

It is also a good time to consider whether appointing a professional trustee is warranted.

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